News: Funds – September 2002

Blackstone closes record fund
The Blackstone Group has closed its fourth private equity fund, having received $6.45bn in limited partner commitments. BCP IV is the largest private equity fund raised to date. The fundraising, in part facilitated by UBS Warburg and Credit Suisse First Boston which acted as placement agents, began in the spring of 2001 with an initial target of $5bn. Up to 30 per cent of the fund’s capital will be invested in Europe, with the majority of the money being earmarked for Blackstone’s US home market.

Stephen Schwarzman, the group’s co-founder, CEO and president, described the prospects for investing the fund as ?particularly opportune given the global dislocation of stock markets and the need for corporations to raise capital by selling assets. The new deal pipeline is beginning to flow again, and at significantly more realistic valuations compared to the last several years.?

Total amount of funds raised by Blackstone for corporate private equity investing now stands at over $14bn. Its private equity group comprises some 50 investment professionals, eleven of whom are senior managing directors. The total capital committed across all of the firm’s alternative asset investing businesses, including private equity, real estate, corporate debt, and marketable alternative asset management, now stands at around $25bn.

LGT to launch new global FoF
LGT Capital Partners, the Swiss-based alternative asset manager is to launch a fund of funds targeting investments in the US and Europe. The fund, Crown Global Private

Equity (CGPE), is looking to raise €200m which will be invested across buyout and venture capital funds on both sides of the Atlantic. The fund, which will seek minimum commitments of €5m from institutions across Europe, is targeting a final close for CGPE in March 2003, with a first closing to be held this October.

According to LGT Capital Partners vice president Giacomo Biondi Morra, ?What sets this fund apart is that investors will be able to allocate funds strategically across US buyout, US VC, European buyout and European VC, meaning that the portfolio will be suitably diversified for the investor’s needs.? The fund will be larger than its predecessor, Crown Technology Ventures (CTV), which completed a final closing in February at €192m. CTV has to date made 23 commitments with a total value of €104m.

LGT Capital Partners now has €2.8bn of assets under management. The team of over 40 investment professionals is also responsible for the investment management of two investment companies listed on the Swiss and Luxembourg exchanges since 1997, Castle Private Equity and Castle Alternative Invest.

Accenture sells own VC portfolio
In a move that some will see as marking the end of a tempestuous investment experience, global management consultancy firm Accenture has reached an agreement to sell its venture and investment portfolio to CIBC World Markets, the investment and merchant banking arm of Toronto-based financial services company CIBC. Accenture will retain a five per cent stake in the portfolio, which comprises approximately 80 early and mid-stage technology companies, with a particular emphasis on software. Launched in 1999 the portfolio was intended to give the consulting firm equity upside exposure to the IT sector. The subsequent collapse in IT company valuations had a profound impact not only on the portfolio’s value but also on the appetite the company had for such equity participation.

Accenture announced in March that it was planning to withdraw from venture capital investing in a move it said was designed to reduce volatility in the company’s future earnings. At the time, Accenture reported a loss on its investment portfolio in the second quarter ending 28 February 2002, including a write down of $212m related to the loss the company expected to incur upon selling the portfolio. In the previous quarter, ending 30 November 2001, the firm had already written down $90m against the value of the portfolio.

The terms of the sale have not been disclosed, although following the earlier charges taken by Accenture, the net book value of the venture and investment portfolio, is said to be approximately $95m. Accenture said that $43m of this was hedged. Accenture said it does not expect to take any additional charges against earnings in connection with the transaction, which is scheduled to close by the end of 2002.

Delta’s first private fund for Russia
Delta Capital, the Russian private equity firm which manages the US government-backed US Russia Investment Fund, is to launch its first private equity fund targeting private investors. Delta Russia Fund LP will look to raise around $100m with a first close scheduled for the end of 2002. The fund will focus on early-stage and start-up investments in financial services, telecommunications, media and technology (TMT) and consumer products and logistics. Since 1995 Delta has invested around $200m in these sectors, typically making investments of between $5m and $10m. Delta CEO and president David Jones believes that the time is right to be launching a new Russian fund despite a degree of apprehension among investors. ?Although Russia has a certain image problem to overcome, it is a fact that the country has a far greater upside than any of its Eastern European peers, given the size of the market and the depth of its natural resources.? Almost by way of laying down the gauntlet to those uncertain of Russia’s potential, the firm is targeting an IRR of around 30 per cent, ten per cent above the global average.

The primary reason for Jones’ optimism stems from Russia’s improved economic performance since the economic crisis of 1998. ?The early years (1995-1998) proved quite difficult for the fund. It was a time when resilience counted for more than quality,? says Jones. ?Since 1999, our role has been to transform our portfolio companies into quality operations and we have achieved this in a growing Russian economy.?

Partners Group holds €160m first close
Partners Group, the Zug-based fund of funds manager, has held a first closing of its latest vehicle aimed at mid-cap European buyout funds. The fund which has closed ahead of original expectations at €160m, counts UBS Group and a number of other large European institutions among its investors. Partners Group, which has funds under management in excess of €4bn, says it will make 15 to 20 investments in funds in the €100-400m size range, investing between €15m to €20m per fund. The firm believes that the small- to mid-cap market in Europe will generate attractive returns in what it describes as a ?highly fragmented? sector in comparison with the larger buyout funds, which often see strong competition for the best deals. Up to 15 per cent of Partners Group Europe LP is also being set aside for secondary deals, highlighting the growing expectation of increased secondary activity in Europe (see also this issue’s cover story). The firm said that it intends to make 15 per cent of the fund available for co-investment opportunities too.

Charlemagne targets Argentine opportunities
Charlemagne Capital, the UK-based investment manager, is launching a $50m Argentine Recovery Fund which will invest in debt and equity structures of distressed companies in Argentina. The fund represents the first step beyond the firm’s traditional focus on Eastern and Central European emerging markets, which the firm has targeted for nearly a decade. Charlemagne Capital is looking to raise $50m over the next three to six months that it will use to participate in and lead debt-for-equity swaps in firms with a ?proven ability to generate reliable revenues.?

PAI’s Europe III buyout fund closes
PAI Management, the French private equity investor which recently spun itself out of French bank BNP Paribas, has closed its third buyout fund 50 per cent higher than the original target at €1.8bn. PAI chairman and CEO Amaury-Daniel de Seze says the fund will look to make ten to 15 investments in companies valued in the €500m to €1.5bn bracket over the next three years. BNP Paribas acted as the cornerstone investor and contributed €250m to the fund, which has attracted almost half of its €1.8bn total from US investors. The Canada Pension Plan Investment Board has also committed €100m to the fund as it looks to increase its exposure to European buyout.

Favonius first close at $77m
Favonius Ventures, the European venture capital firm with offices in Amsterdam and London, has raised $77m at first close for its latest venture capital fund, Favonius Ventures Fund. The new fund will target venture capital investments in European technology companies, focusing on rapidly growing enterprise software and communications. Favomius is targeting a $125m final closing for the fund, which it hopes will take place at the end of 2002. The fund has already received commitments from ABN Amro, ING Bank and CalPERS, through its advisory firm Grove Street Advisors.

Harvest Partners exceeds $500m target
New York-based Harvest Partners has closed its fourth investment fund ahead of target at $558m. The fund, Harvest Partners IV, will be invested in management buyouts and growth financings of profitable domestic and multinational middle-market companies in the US and Europe. The original target for the fund had been set at $500m, with Deutsche Beteiligungs AG (DBAG) the fund’s largest investor. Other institutions committing to the fund included BancBoston Capital, General Electric Capital, Liberty Mutual Life Insurance, National City Capital and New York Life Capital Partners enabled the firm to surpass the original target. Harvest Partners uses its strategic partnership with DBAG as a platform for targeting European investments.

21 Centrale targets Europe
21 Centrale Partners, the French development capital arm of 21 Group, is working with placement agent Triago to bring new European limited partners into its fund 21 Développement 2, which has a €125m target. 21 Centrale held a first closing on €56m in May, having received commitments from existing investors including Crédit Agricole Asset Management, MAAF, CCR Actions and the European Investment Fund. A €25m cornerstone investment has been made by parent 21 Group. Unicredito has also made an allocation to the fund.

Italian mid-market fund exceeds target
Industria & Finanza, a private equity firm sponsored by holding company Iniziativa Piemonte as well as corporate finance advisers Ersel Finanziaria and Mittel, has closed IF Investimenti, its first private equity fund. Launched in October 2001 with a €100m target, the fund has raised €112.5m to invest in mid-market companies predominantly in Italy’s industrial North. The fund, which raised €34m of its capital from two European institutions based outside Italy, is looking to take majority positions in Italian industrial businesses. Elm Capital, a London-based placement agent, advised IF Investimenti during the fund raising. Legal advice was provided by Italian law firm Mastracchio as well as Simmons & Simmons.

Lombard Odier Darier Hentsch to raise second European FoF
Lombard Odier Darier Hentsch, the Geneva-based private bank, is to launch LO Private Equity – Euro Choice II, a private equity fund of funds that will concentrate on mid-market buyout and expansion capital investment in Western Europe. Euro Choice II is aiming to raise €200m from institutional investors and family offices in Europe and the US. A first close is expected in the fourth quarter of 2002.

Greek FoF to raise €150m
The New Economy Development Fund (TANEO), a Greek state-controlled investment vehicle, is to launch a venture capital fund of funds for private sector investors that will target investments in Greek new economy funds. TANEO is looking to raise around €150m which it will spread across funds targeting Greek-based small to medium-sized enterprises. The firm says it is specifically targeting funds investing in innovative businesses.

Dexia closes its VC operation
Belgian bank Dexia has announced the closure of its Dexia Ventures division in a move designed to reduce the firm’s exposure to early stage venture capital investments. Dexia Ventures operated as a separate company within the Dexia Group, investing in the Internet, Comminications and Technology (ICT) sectors and high technology companies via its €45m fund. Dexia Ventures made investments of between €100,000 and €1m in high tech and ICT firms.

Dexia is now looking to shift its focus towards later stage – and arguably lower risk – investments, following on from its acquisition of fellow Belgian bank Artesia in April last year. Dexia director Philippe Steverlynck said the bank’s focus would now move towards development capital investments.

Dexia has transferred four of the eight-strong team at Dexia Ventures to the bank’s corporate division, from where the remaining 20 portfolio investments will be managed until divestment. Steverlynck said that only two of the firm’s remaining investments were likely to obtain follow-on investments.